1 Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence a A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement b A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement c A ten year 8 bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7 d A ten year 8 bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9 2 Which of the following situations does not base an accounting measure on present values a Pensions b Prepaid insurance c Leases d Sinking funds If you invest 50 000 to earn 8 interest which of the following compounding approaches would return the highest amount after one year a Daily b Monthly c Quarterly d Annually 3 4 Which factor would be smaller the present value of 1 for 10 periods at 8 per period or the future value of 1 for 10 periods at 8 per period a Present value of 1 for 10 periods at 8 per period b Future value of 1 for 10 periods at 8 per period c The factors are the same d Need more information 5 Which of the following tables would show the smallest value for an interest rate of 5 for six periods a Future value of 1 b Present value of 1 c Future value of an ordinary annuity of 1 d Present value of an ordinary annuity of 1 6 A series of equal receipts at equal intervals of time when each receipt is received at the end of each time period is called an a ordinary annuity b annuity in arrears c annuity due d unearned receipt 7 On December 1 2014 Richards Company sold some machinery to Fleming Company The two companies entered into an installment sales contract at a predetermined interest rate The contract required four equal annual payments with the first payment due on December 1 2015 one year after the date of the sale What present value concept is appropriate for this situation a Future amount of an annuity of 1 for four periods b Future amount of 1 for four periods c Present value of an ordinary annuity of 1 for four periods d Present value of an annuity due of 1 for four periods 8 An amount is deposited for eight years at 8 If compounding occurs quarterly then the table value is found at a 8 for eight periods b 2 for eight periods c 8 for 32 periods d 2 for 32 periods Which of the following statements is true a The higher the discount rate the higher the present value b The process of accumulating interest on interest is referred to as discounting c If money is worth 10 compounded annually 1 000 due one year from today is equivalent to 1 100 today d If a single sum is due on December 31 2014 the present value of that sum increases as the date draws closer to December 31 2014 9 10 Peter invests 100 000 in a 3 year certificate of deposit earning 3 5 at his local bank Which time value concept would be used to determine the maturity value of the certificate a Present value of one b Future value of one c Present value of an annuity due d Future value of an ordinary annuity 11 Jerry recently was offered a position with a major accounting firm The firm offered Jerry either a signing bonus of 23 000 payable on the first day of work or a signing bonus of 25 000 payable after one year of employment Assuming that the relevant interest rate is 10 which option should Jerry choose a The options are equivalent b Insufficient information to determine c The signing bonus of 23 000 payable on the first day of work d The signing bonus of 26 000 payable after one year of employment 12 Which of the following statements is false a The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate b The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate c The factor for the future value of an annuity due is found by subtracting from the ordinary annuity table value for one more period d The factor for the present value of an annuity due is found by adding to the ordinary annuity table value for one less period 13 Sue Gray wants to invest a certain sum of money at the end of each year for five years The investment will earn 6 compounded annually At the end of five years she will need a total of 20 000 accumulated How should she compute her required annual investment a 20 000 times the future value of a 5 year 6 ordinary annuity of 1 b 20 000 divided by the future value of a 5 year 6 ordinary annuity of 1 c 20 000 times the present value of a 5 year 6 ordinary annuity of 1 d 20 000 divided by the present value of a 5 year 6 ordinary annuity of 1 14 Stemway Company requires a new manufacturing facility It found three locations all of which would provide the needed capacity the only difference is the price Location A may be purchased for 500 000 Location B requires 40 000 payments at the beginning of each of the next twenty five years Location C may be acquired with a down payment of 100 000 and annual payments at the end of each of the next twenty years of 50 000 Assuming Stemway s borrowing costs are 8 per annum which option is the least costly to the company a Location A b Location B c Location C d Location A and Location B PV of A 500 000 PV of B 40 000 times the future value of a 25 year 8 annuity due of 1 PV of C 100 000 50 000 times the future value of a 25 year 8 ordinary annuity of 1 15 Assume ABC Company deposits 70 000 with First National Bank in an account earning interest at 6 per annum compounded semi annually How much will ABC have in the account after five years if interest is reinvested a 94 074 b 70 000 c 91 000 d 93 677 70 000 1 34392 94 074 16 Charlie Corp is purchasing new equipment with a cash cost of 250 000 for an assembly line The manufacturer has offered to accept 50 900 payment at the end of each of the next six years How much interest will Charlie Corp pay over the term of the loan a b …